Silver Price Forecast: XAG/USD holds above $45.00 near fresh 14-year highs

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Silver price maintains its position near a 14-year high of $45.29 reached on Friday.
Strong US economic data may lead the Fed to take a more cautious stance on implementing deeper rate cuts.
Fed’s Goolsbee said he is reluctant to pursue further policy easing while inflation remains above target.

Silver price (XAG/USD) remains near a new 14-year high of $45.29 reached on Friday, trading around $45.20 during the early European hours. The precious metal Silver holds losses after registering nearly 3% gains in the previous session. Traders await the US August Personal Consumption Expenditures (PCE) Price Index data later in the day for fresh impetus.

Solid economic data from the United States (US) may prompt the US Federal Reserve (Fed) to adopt a more cautious approach to deliver deeper interest rate cuts. The non-interest-bearing Silver attracts some sellers as higher interest rates could increase the opportunity cost of holding Silver. Additionally, the US Dollar (USD) gained more than 0.5%, which might have restrained the upside of the dollar-denominated commodity.

US Initial Jobless Claims declined to 218K last week, the lowest since July. The market expectations were an increase to 235K from 232K previously. The US Gross Domestic Product (GDP) Annualized grew 3.8% in the second quarter (Q2), coming in above the previous estimate and the estimation of 3.3%. Meanwhile, the GDP Price Index rose 2.1% in the same period, as compared to the expected and previous 2.0% growth.

Chicago Fed President Austan Goolsbee noted that he was not eager to do a lot more policy easing while inflation is above target and moving the wrong way. However, Fed Governor Stephen Miran, the Fed's newest policymaker, preferred a more aggressive 0.50% cut to prevent labor market collapse. Meanwhile, Kansas City Fed President Jeffrey Schmid said the rate cut was needed to help ensure that the job market remains in a good place.

Silver FAQs

Why do people invest in Silver?

Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.

Which factors influence Silver prices?

Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.

How does industrial demand affect Silver prices?

Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.

How do Silver prices react to Gold’s moves?

Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.

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